It's 7 am in Ho Chi Minh City's (formerly known as Saigon) busy District One. Glass-faced skyscrapers adorn its skyline. Young professionals are trying to navigate through the busy traffic on their motorbikes. Hawkers are selling fast food such as famous Banh Mi by the side of the road. There is a veritable energy, and only one that is present in an aspiring society and a growing economy.
Within walking distance of District One stands the War Remnants Museum, which houses photographs, literature, and objects from the Vietnam War. One can't help but reflect on the devastation and suffering the war brought on the country.
The contrast may make it feel like there are two Vietnams. And there were, before the war ended and after the country reunified in 1975. After seeing the contrast, it's a wonder how Vietnam managed to get to where it is today. How did Vietnam grow from one of the poorest countries in the world in the 1970s to one which lifted over half its population out of poverty – all in the span of about 30 years?
The economic miracle
Vietnam spent the first few years of unification running socialist experiments. It was 1986 when it embraced market-oriented socialism, opening up the economy while keeping society firmly in control. After the fall of the Soviet Union, the pace of economic reforms accelerated as Vietnam entered into a slew of trade agreements in the 1990s. A country that started as primarily an agricultural exporter now boasts sizable electronic exports, ranking in the top 10 in the world.
While courting foreign investments, Vietnam also paid attention to reforms at home by directing public investments to education and infrastructure building. According to the World Bank, Vietnam spent a whopping 5.7% of GDP on education, even higher than the OECD (a group of developed economies) average, topping economic powerhouses like the US, Germany, Australia, and the UK.
The reforms also boosted local entrepreneurship, resulting in a plethora of small and medium businesses opening around the country. Today, Vietnam is challenging the regional leaders, Singapore and Indonesia, in the start-up space. The government is actively attempting to lure back local talent that had gone abroad to study and work.
Data and rankings
The data and rankings reflect all these efforts. Vietnam's GDP has grown every single year since 1981, even during the dot com bust and the global financial crisis. GDP growth for 2018 came in at an impressive 7.1%, at a time when major economies including China's are faltering.
Meanwhile, per capita GDP has grown from US$231 in 1985 to US$2,343 in 2017. The country's annual Foreign Direct Investment (FDI) has grown by over seven times between 1996 and 2018. Vietnam has made strides in ease of doing business too with its ranking jumping from 90 in 2010 to 69 in 2018.
The road ahead
With a median age at just over 30 years old, Vietnam's young and vibrant workforce can help the country move further ahead in manufacturing. This is especially significant as China, the manufacturing hub of the world, is battling with the problem of an aging population with its median age at 37.4 years.
The services sector, though, is lagging compared to its neighbors, who command a higher share of GDP from the sector. Being an export-driven economy, the ongoing trade war may hamper Vietnam too but on the flip side, it may also benefit – only if it can attract manufacturing business away from China.
There are many challenges that Vietnam needs to overcome in order to move into the middle-income category but its journey so far has been impressive.
Hong Kong became the biggest FDI investor in Vietnam in the first quarter of 2019. As China slows down, you may see more capital from Hong Kong flowing into Vietnam, perhaps indicating the emerging relevance of this exciting Southeast Asian economy.
A version of this article was written by Mayur Sontakke and originally appeared on our Fool Asia site. For more coverage like this head over to Fool.hk.en